Are Seattle List Prices Especially Unrealistic Compared to Other Cities?

Here’s a weekend data quickie for you. I just finished up a series of posts regarding price reductions on Redfin’s ten local blogs around the country, and I noticed something interesting in the data.

The data they sent me is pulled directly from their database, and so includes MLS, FSBO and REO listings. We calculated the total percent of all listings in each city/town and neighborhood that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days. Cities/towns or neighborhoods in which the number of homes taken off the market was too small to provide believable estimates are excluded from ranking.

In the table below I have simply posted the median price-reduced ratio for each market’s cities/towns and neighborhoods. (Click a column header to sort.)

Metro Area

Cities/Towns

Neighborhoods

Boston

47.1%

48.6%

Chicago

52.0%

48.0%

Los Angeles

31.1%

36.9%

New York

38.4%

31.9%

Orange County

36.1%

37.0%

San Diego

30.2%

28.0%

San Francisco

35.1%

33.3%

Sacramento

25.5%

27.7%

Seattle

52.1%

47.7%

Washington, DC

50.2%

44.9%

Note that Seattle cities/towns have the largest median price-reduced ratio among Redfin’s markets, and Seattle-area neighborhoods rank third, less than a full percentage point below the #1 slot.

Compared to Redfin’s California markets, Seattle sellers seem especially unrealistic. I just thought this data was an interesting look at the psychology of sellers here and around the country.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

The real estate market correction started in California. California sellers are further along with their coping. Denial is one of the first stages resulting from a loss. Acceptance of reality will be achieved during the final stages of the grieving process. Give it time. All will be in harmony. Ommmmm.

It’s not the gloom, or the poor attitude, or the lack of interest in pushing success forward that’s going to hurt us. It’s the real, unavoidable, consequences of forty years of unsustainable reality that’s gonna bite. It’s going to be hard and deep, and no amount of wishing, “Secret” reading, PMA pumping delusional hype is going change it. All we can do at this point is hope to choose a least offensive combination of increasing inflation, rising unemployment, continuing capital losses, higher taxes, and devalued dollars from the buffet of consequences laid before us. Bon appetite’

Phoenix most likely not carried on Red Fin blogs but currently 1 of the Best Deals on the block in the Auction Areas. Vegas as well looking rather tasty! Gems gems everwhere……..Anyone planning their “snow bird” lifestyle these next few years? Time to start booking the SWA tickets and begin your research. Time and effort…Thats all it takes………

I don’t get this stat. The percent with price reduced before leaving the market, either with a sale or not? What could that possibly tell you? Seemingly, a higher percentage of price reductions would be better for the failed listings, because presumably they should try to reduce price. Conversely, a lower percentage of price reductions would be better for solds, because that means they priced accurately in the first place. So what does combining the two categories tell you?

currently 1 of the Best Deals on the block in the Auction Areas. Vegas as well looking rather tasty!

Just because one asset has had a bigger price drop (in percentage terms) than others does NOT mean it is necessarily a good deal. West Texas real-estate looked like an incredible deal after 60% (or greater) price drops in the ’80s, yet prices have hardly recovered at all in many Texas citities some 20 years later.

Stocks are another great example of this phenomena. Back in the .com bust of 2001/2002 I knew lots of people who would jump in and buy tech stocks using the justification that they were 70% less than a year ago, only to see the stock price drop another 50% (or even go all the way to $0).

Yes, Phoenix and Las Vegas may be experiencing the greatest real-estate price reductions, but they may well exprience far deeper declines. This is a good lesson for people to keep in mind wherever they live… Just because real-estate prices in your area may have dropped somewhat from where they were at the peak DOES NOT mean they won’t drop further.

RE:Sniglet @ 9 – I would tend to agree with that, but it might also depend on your purpose.

Using a local example, Skyway had dropped considerably, but IMHO that’s largely because it inflated a lot just prior to the peak. So that doesn’t mean that its lower prices are necessarily a good deal, if what you’re looking for is a house to live in. But if you’re plan is to sell at a profit someday if and when Seattle real estate rebounds, Skyway might give you the best bang for the buck–using a history repeats itself type analysis. So Skyway might be more attractive for an investor type than a homeowner type.

But connecting that back up to Vegas, I’m not really sure what the driving force would be down there to once again send prices up. I’ve not been to Vegas for years, so perhaps my perception is wrong, but I had a hard time before understanding what was driving their market besides momentum. If I were to pick a city to turn things around, it wouldn’t be Vegas. So significant price drops alone are not enough.

What it tells me is that generally, as a yardstick measure, the original asking prices for homes in the Seattle area are higher than most other metro areas, relative to what buyers are willing or able to pay. Potential buyers are a bit spooked about the future of the economy or are finding it more difficult to acquire financing, and / or sellers have not yet adjusted to the realities of the market. It’s not any more complicated than that.

RE:TJ_98370 @ 14 – I don’t see how it tells you that at all. I can’t see that it tells you anything, for the reasons stated. If sellers in other cities are not reducing their asking price and not selling, that would be a bad thing, but this stat would give that city a lower percentage for that behavior.

“We calculated the total percent of all listings in each city/town and neighborhood that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days.”

For example, if all Seattle sellers reduced the price by $1, then the data would show that 100% of the Seattle sellers had a price reduction. That’s a total of about $10k for the entire market area, plus or minus, and represents essentially zero percent of the asking price.

On the other hand, we could have a market with only a few price reductions that are significant. It would take only one $10k price reduction in another market to be the same gross dollar value as all ten thousand $1 price reductions.

RE:Kary L. Krismer @ 10 –
Skyway is a very interesting example. In terms of convenience, it’s about 15-20 minutes from both downtown Seattle and downtown Bellevue, yet had and has again some of the lowest housing costs in the Seattle area, and as the rest of the area saw home price increasing dramatically, Skyway was seen as one of the last bastions of affordability.
But Skyway also has the reputation, mostly undeserved, of being a dangerous, slummy area. There are some rundown parts, there are casinos, and there have been a few shootings over the years ( primarily people shooting people they know). It’s also largely unincorporated King County.
Still, like Kary said, if you ascribe to the history repeats itself belief, Skyway will yet rise again, at least as a good investment. I live near Skyway, and there are some nice houses with nice views and large lots for far less money than some nearby areas. There are an increasing number of neighborhood people getting involved in making the neighborhood a nicer place.
So this has been a longwinded way of saying that I agree with Kary. If the Seattle area rebounds economically and grows, there will be a need for more affordable homes, and Skyway is one of those places that have the room and the lower prices.

RE:disbelief @ 18 – Homes that actually sold is a good base to start with, but the problem becomes trying to use the data for anything meaningful. Let’s say that sold homes have little to no price reduction. Does that mean that all homes in the area are priced right? If the sold homes all had price reductions, what does that say about the remaining homes?

The ultimate problem is that past performance does not necessarily represent what will happen in the future.

Here is how I look at it:

Let X be the market value of a given product. X is therefore the final sales price. If the asking price is significantly less than X, then it will sell right away. If the asking price is significantly more than X, then it will be very slow to sell, and the asking price may need to be reduced. It’s really tough to determine X from asking price.

It might be interesting to get the % of homes that sold above asking price. This would indicate how many sellers asked less than the final sales price.

Another interesting statistic for comparison to other markets might be a graph showing the length of time houses in a particular market sit before the price is reduced substantially (based on a sample of homes that all have been reduced a certain % prior to selling, say, 5%, 10%, etc.

In addition to being able to compare one market to another, I think it would also be interesting to see the change over time in a particular market. Also, If there is a strong correlation (over time) between the trend of two different markets-say, Seattle and Los Angeles, I would think this might support the likelihood that (in the event one market is shown to be lagging another) that any similarities in trends might continue.

I’m thinking this might give an indication of average “need to sell” in a particular market.

“Let’s say that sold homes have little to no price reduction. Does that mean that all homes in the area are
priced right?”

I guess it would come down to whether the sample size could be considered relevant or not. If it was, I would say that it is rather an indication that the homes in a particular market are not priced to high>

RE:disbelief @ 22 – The problem is that you are trying to extend the data from the sold homes as a predictor of the unsold homes. Unfortunately homes that are desirable and priced right sell. This can never be used to suggest that an over-priced home is priced right.

Take a home that is clearly over-priced. Clearly.

If all homes in the area sell for full-price offers, will the over-priced home sell for a full price offer?

The market analysis is not based on asking prices, but rather sold prices. Consider a set of recently sold comparables, and then guess the approximate value based on actual sold prices, not asking prices.

Asking prices do not determine market value. There are sellers, however, that use market values of sold homes to determine an asking price.

RE:disbelief @ 24 – Oh, yes, statistics can never be used to prove a specific situation, but may be used to show some past trends. In fact, if you want to compare two large markets, and get the base for the sample correct, then I suspect that some interesting things might be revealed.

RE:AMS @ 16 – RE:Kary L. Krismer @ 15 –
.
Not enough data. Need more data.
.
I won’t speak for the Tim, but I believe he is assuming that the value of price drops in Seattle neighborhoods and that of other cities are approximately equivalent. I also believe he is assuming similar seller / buyer behavior. These two assumptions are reasonable and if correct, the “median price-reduced ratio” does have meaning and that meaning would be that the expectations of sellers in Seattle are more misaligned with the market than most other places.

RE:TJ_98370 @ 26 – “I believe he is assuming that the value of price drops in Seattle neighborhoods and that of other cities are approximately equivalent.”

Average selling prices are far from equal, as we have discussed. If the value of price drops are equivalent, then the percentage is not. If the percentage is equivalent, then we run into other problems, such as an insignificant price drop in terms of actual dollars in another market. Detroit was listed with a median price of $16,500. 10% = $1,650. Clearly a 10% drop in Seattle is far more significant.

First we cannot tie it to any sales, as the data includes homes that are sold and delisted, but not sold.

Does it suggest that a given market is going down faster than another? Does it suggest that the sellers are “unrealistic?”

The underlying problem is we do not know what is properly priced, nor do we know how much a given market is changing, up or down. Additionally, given we have tax intervention, the lower end is more apt to increase in price, as the government pays 10%.

The broad data presented here are essentially meaningless without some further information, which is not presented.

What might be more interesting, in my opinion, is to look at historic trends. Establish a baseline, and then see where we are today. In a market where prices are increasing, the percentage of price reductions should be decreasing.

Take a look at C-S methodology. They compare historic trends, not just where a city is today.

The bottom line, I suppose, is that asking prices do not establish market value, but leverage often will impact asking prices. Maybe this data suggest that one city is more leveraged than another?

(As pointed out above, 100% of the homes could receive a small price reduction–what does this mean?)

RE:disbelief @ 18 – Homes that actually sold is a good base to start with, but the problem becomes trying to use the data for anything meaningful. Let’s say that sold homes have little to no price reduction. Does that mean that all homes in the area are priced right? .

It could mean that some were priced low, and the owners were too pessimistic.

I would think a more useful stat would be the one I often point to–the percent of listings that sold that were on the market 30 days or less. For August that number in King County was roughly 40% of the listings sold.

Obviously that doesn’t tell you a thing about the listings that don’t sell, but it does give you some idea of the number of listings coming on that are priced right (or too low).

Stories like this, which are proclaiming that the worst is over, only serve to further solidify my belief that the bad stuff hasn’t even begun… There is far too much complacancy right now. I am just amazed at how many of my friends think that we’ve turned the corner.

Sniglet-
We have turned a corner- the one that comes not far before going off the cliff. Remeber, the Great Depression was not one monolithic event- things went down, then went up, then jumped off a cliff. In my family we’re predicting 2012 as when we’ll go over the cliff- but let’s just say I’m watching closely, cause it certainly could come sooner.